Surviving the crazy

[7 min read]

Dear Reader,

In yesterday’s Rum Rebellion, Vern Gowdie explained how the market was obsessed with coming inflation.

Well, it may just have to wait a little longer. Overnight saw the release of US inflation numbers and the core reading (which excludes food and energy) came in at 1.3% for the year.

Hardly roaring inflation, is it?

In response, US bond yields took it easy. They are currently sitting around 1.57%. Aussie government 10-year yields are around 1.7%.

While higher than they were at the start of the year, they’re not exactly signaling spiraling inflation. And while they might go higher in the short term, again, the chances of sustainable consumer price inflation taking hold anytime soon is remote.

RBA boss Philip Lowe reiterated that inflation, and therefore interest rates, is a long way from rising. From the Financial Review:

‘Reserve Bank of Australia governor Philip Lowe has rejected market expectations of an early increase in interest rates, insisting it will not lift its record-low cash rate of 0.1 per cent until the jobless rate falls far enough to generate higher wages.

‘In a policy pivot, Dr Lowe said the unemployment rate would need to fall from the current 6.4 per cent to about 4 per cent, and possibly even lower, before wages rose above 3 per cent and the central bank could raise interest rates.

‘The bank does not expect the labour market to be tight enough to justify tighter monetary policy until at least 2024.’

So we’re going to be dealing with Life at Zero for a long time to come.

What does that mean?

Well, your cash will be worthless sitting in a bank account. Sure, keep some for tactical purposes. It’s always good to have cash on hand to buy stocks when they look cheap. But as a longer-term strategy to hide out from overpriced asset markets, it’s a bad move.

And besides, not all assets are overpriced. I just recommended a stock trading at less than half of its book value. This company is exposed to the Northern Hemisphere. So the rolling COVID shutdowns have really hurt it. But it has world class assets. As such, I believe its share price is momentarily depressed.

It’s not the only opportunity I’m seeing. There are plenty of companies out there that are reasonably priced using conservative valuation estimates.

That’s not to say markets won’t correct from time to time. But these corrections, or volatility, are just the price of admission. You have to accept that your portfolio will move around if you want to avoid death by a thousand cuts by sitting in cash.

Why am I so sure that stock markets will keep rising? As I put it in my Life at Zero Roadmap, it’s all about currency debasement:

‘When central banks and governments press the stimulus button, they are trying to create inflation...as in, inflation in goods and services prices. But as I’ve said, it doesn’t work. All it does is create financial system liquidity that leads to asset price inflation instead.

‘People treat this new money, created by governments and their central banks, like a hot potato. They don’t want to hold it because they know it will lose value over time. So they buy assets — stocks, bonds, property, gold, silver, bitcoin...you name it.

‘Here’s the key takeaway:

‘1. Stimulus inflates asset prices — while increasing debt and weakening the economy.

‘2. That leads to even more stimulus.

‘3. And so asset prices go even higher.

‘If you think anything is going to change on that front, you’re going to be sorely mistaken. That’s because there is no alternative. When the next slowdown comes, if governments and central banks do nothing, markets WILL collapse. That’s why they will act and launch larger and more insane levels of stimulus.

‘But it won’t just be QE anymore. Modern Monetary Theory is coming, along with central bank digital currencies. If you haven’t heard of these terms before, mark my words: You will. They are designed to allow the authorities to have even greater control over the money you earn and spend.

‘Politicians and bureaucrats are determined to create inflation not just in asset prices, but in goods and services prices. And believe me, you don’t want to be holding cash when they finally pull it off.

‘This process will play out over years. 2021 is likely to continue to see a “seeding” of these ideas, so they’re accepted wisdom by the time they actually come about. And by that time, markets will have priced them in.

‘I hope you’re still with me. I know this stuff sounds bizarre. That is, a structurally weak economy and broken financial system creating sky-high asset prices. It makes no sense. But when you realise that underneath it all is a failing currency system, you can see that people are escaping cash to protect their purchasing power.’

When I talk about a failing currency system, I’m not just talking about the US dollar. I’m talking about the global financial system. The whole thing is corrupt and broken. The 2008 crisis was the beginning of the end.

And despite what I’ve written above, I don’t expect the US dollar to collapse. You see, when the system becomes stressed, the US dollar rises. It’s another quirk of the system that is difficult to explain in a few sentences.

But in short, I expect the US dollar to be the ‘last fiat currency standing’, as it were.

With that in mind, it’s interesting to see the US dollar strengthening of late. Here’s a chart of the US Dollar Index:

If the US dollar is starting to move higher again (after falling for the past 12 months) that will likely create a headwind for overpriced stocks.

Perhaps that’s why the NASDAQ has been under the pump lately?

It will be interesting to see how this continues to play out…

To help you navigate these crazy markets, please check out my Life at Zero presentation.

Cheers,

Greg Canavan,
Editor, The Rum Rebellion

We’re Dealing With Modern Money Madness
By Bill Bonner

This is a wacky week…with more exotic mysteries and marvels of modern money madness.

And today, we look at NFTs…non-fungible tokens.

By ‘non-fungible’, they mean they are one-of-a-kind. And by ‘token’, they mean…well…it’s not necessarily anything at all.

Oh, and by the way, the ‘blockchain’ is involved, too.

The ‘token’ is placed on the blockchain, where it will be safe and sound; you won’t have to worry about anyone stealing it…if there were anything to steal.

Iconic importance

And that is where it gets interesting, because you can tokenise practically anything.

You could take a picture of yourself clowning around in the garden, for example, and put it on the blockchain…and there, it will be forever…an NFT…like a wedding ring resting at the bottom of the ocean.

Most often, NFTs have some iconic importance. One company, for example, takes an image — of, say, LeBron James dunking a basketball — and turns it into an NFT.

Note that there may be millions of photos of LeBron James dunking the very same basketball…even the same photo that became your NFT. But you…and only you…have the tokenised, encrypted, blockchained version with your number on it.

Wild-eyed wonders

What it is worth is not the subject of today’s Diary. Because the answer to that is obvious — nobody has a clue.

Our subject today is merely the wackiness…weirdness…and the wild-eyed wonders of a late-stage Bubble Epoch.

Yesterday, for example, the headline news was this, from MarketWatch:

‘Nasdaq soars 3% as falling bond yields fuel tech bounce; Dow back above 32,000’

Fall in bond yields? Really?

Checking, we find that the 10-year Treasury yield fell from 1.59% on 8 March to 1.55% on 9 March. That this 0.04% one-day drop would trigger a 3% rise in the NASDAQ is nutty enough.

But when the money goes bad, everything gets a little nutty.

Tesla stock, for example, rose nearly 20% yesterday — adding more than $100 billion to the value of the company. Maybe investors are imagining how a 0.04% decline in auto finance rates will trigger millions of news sales!

More likely, they’re anticipating all the fancy new automobiles people will buy with the ‘stimmy’ money they’re getting from the feds.

Even more likely still…they know that a lot of that stimmy money will be used to buy Tesla stock.

Performance art

But back to the NFT…

Once you have the LeBron James…NFT…which you might have paid $200,000 for — after all, it’s the only one! — then, it might be cool to destroy it.

We got the idea from that great, pull-your-leg artist, Banksy, after his own leg was just pulled by a company calling itself Injective Protocol.

In 2018, Banksy famously destroyed one of his own works, ‘Girl With Balloon’. It was being sold at auction…but as soon as the hammer came down, a shredder built into its commodious frame suddenly ripped it to pieces right in front of the whole assembly, including the woman who had just bid $1.4 million for it.

She graciously accepted the now shredded — and now-cooler-than-ever — painting, renamed by the unidentified Banksy, ‘Love is in the Bin’.

Sotheby’s, the auctioneer, said it ‘marked the first time a piece of live performance art had been sold at auction.’

Morons in flames

Last week, Injective Protocol — a blockchain company, according to CBS News — took a big step forward in the nuttiness of the late Bubble Epoch genre.

It bought a Banksy 2006 work entitled ‘Morons (White)’ for $95,000. The (master) piece shows a crowd at an art auction gawking at an ornate frame, in which it is written, ‘I can’t believe you morons actually buy this sh*t.’

Then, Injective Protocol made a digital version of it and turned it into an NFT…before destroying the original Banksy work, calling the destruction ‘BurntBanksy’. This destruction, they live-streamed on Twitter.

And lest the clin d’oeil be missed, the person who set a match to Banksy’s ‘Morons (White)’ painting was wearing a mask…and a shirt with the ‘Girl With Balloon’ on it.

Now, in its post-physical, digital form, ‘Morons (White)’ is supposedly worth $380,000.

Expensive amusement

But ‘What is something like that worth?’ is a question that could only be asked by someone who is not in on the joke.

For a company, earnings are a drag…they bring the company down to Earth. And for an NFT, any attachment to the real world threatens to break the spell.

A real Banksy has value. Based on the example above, an NFT of it is four times more valuable.

But at least the show is amusing. People pay for amusement. And the betting at this stage of La Bubble Epoch is that they will pay more and more — for amusing tokens, both fungible and non-fungible.

Shares in Tesla, for example. Tesla’s share price cannot be explained as a function of expected earnings. It must have some additional, token value.

Sillier and sillier

As silly as it is, the ‘silly season’ is probably going to get sillier and sillier…as the Fed add another $1.9 trillion to last year’s $3 trillion ‘stimulus’…to be followed by another trillion-dollar infrastructure boondoggle…and perhaps, another few trillion on a Green New Deal.

Prices — for NFTs…Tesla…techs…cryptos…SPACs — might go much higher.

And all of the silliness — in the art world, as well as the financial world — must be financed by the Federal Reserve’s ‘printing’ of its own fungible tokens, of equally mysterious worth.

All we know for sure is that it will take trillions more of these ‘dollars’…most as electronic tokens, some as paper tokens…to keep the bids coming in.

And then…some joker strikes a match, and it all goes up in smoke.

Regards,

Bill Bonner,
For The Rum Rebellion